Top 5 homebuyer regrets

By Tara-Nicholle Nelson
Inman News®

In life, and in real estate, there are decisions that, if we had them to do over again, we might do x, y or z differently. But all in all, we are not too upset about how things turned out. "C'est la vie," as they say.

Then there are the decisions and actions we actively regret, worrying over their long-term consequences, wishing we could have a cosmic do-over, stewing and ruminating over what we did wrong. (In truth, it's a sign of emotional maturity to see every experience as an education, and to be free from ruminating over even the worst of our regrets. But I digress).

Contrary to popular belief, my experience shows that the vast majority of homebuyers commit what they see as the first type of mistakes, but not those deep, dark regrets. However, those that do have serious regrets can lose many hours of sleep and many thousands of dollars trying to remedy them. Their only gain? Experience and gray hairs.  

Here are the top 5 true, deep regrets of homebuyers and some insights for how to prevent them from taking over your own life:

 

1. Premature buying. This is not at all about timing the market or making sure you get in at the "just-right" moment. There's not much you can or should do about that. But buying before your life or your finances are ready for homeownership is a transgression that ends up causing serious, long-term regrets for those who end up doing it. Premature buying takes several forms, the most common of which includes jumping the gun and buying before you've saved as much as you really need, or before you've paid your debt down to the level you really needed to.

Another pervasive form of premature buying is to buy before you've truly, deeply, seriously run all your own personal financial numbers, which puts you in the position of forced reliance on what the bank, lender or someone else thinks is affordable, which is often wrong.

Similarly, buying because you feel pressure to get in while the market is keeping prices and interest rates low, rather than because you want and can afford a home, is a surefire path to real estate regret.

 

2. Buying too small of a house. People who buy too large of a home often realize, several years in, that they simply aren't using all of their rooms and many either sell and downsize or find ways to put the extra space they have to better use. People who buy too small of a home, on the other hand, are acutely aware of it from the moment their children start fighting, they find themselves and their energy levels deactivated by clutter or they end up realizing that there is no room at the inn for the family members or friends they'd like to house, short or long term.

Buying too large of a home is potentially wasteful of the money spent maintaining, heating and cooling the place; buying too small a home is uncomfortable and frustrating, sometimes intensely so, on a constant basis -- hence, the regret it can create.

Avoid this regret by starting your house hunt with a visioning exercise: What do you want your home life to look like in 10 years? Who will live with you? Do you entertain or have overnight guests? What activities do you want or need to be able to do there? Do you want to practice yoga, crafts, have kid-sized homework spaces, work at home, collect classic cars or move your parents in? If so, seek to buy a home that can comfortably fit all these people and their activities, even though they might not all exist -- yet.

 

3. Buying a home you can't truly afford. You might think that one of the top 5 regrets of homebuyers would be buying at the top of the market. But that's not the case -- I know plenty of buyers who bought at the top, paid top dollar and are still upside down on their homes, yet are still happy with their homes because they can well afford the payment and bought homes that will serve their families very well for the very long term (which will allow their home's value to recover).

It is much more problematic to simply overextend yourself on a home -- no matter what the market dynamics are at the time you buy. People who both bought at the top of the market AND overextended themselves made up the large majority of folks who lost homes, as the mortgage gyrations they went through (i.e., taking short-term, interest-only, adjustable-rate mortgages) in order to qualify for the home in the first place also caused them to be utterly unable to sustain the mortgage once the market declined and their mortgages weren't able to be refinanced.

If you can't foresee being able to make the mortgage payment on your home 10 years in the future without refinancing it, that's a sign you might be approaching the unaffordability danger zone.

 

4. Incompletely resolving co-buyer conflicts. Many co-buyers are couples, but I've also seen parents buy homes with their children, siblings buy homes together and even good friends team up to co-buy a home. Any time there is more than one buyer, there is a chance that the co-buyers will have one or more disconnects in their wants, needs and priorities. Often these are resolved almost effortlessly by the realities of the homes that are on the market (e.g., neither party's dream home turns out to actually exist, or pricing realities require everyone to compromise); other times, people simply work things out like mature individuals, seeking first to understand their co-buyer's position, then working out a compromise that works for everyone involved.

But in still other cases, the conflict is never truly, deeply resolved; even on closing day, one side feels completely misunderstood, or caves in for the sake of avoiding conflict, or someone simply throws a tantrum, insisting that they get their way. In these cases, it's common for the party who feels undermined and trampled on to ruminate on it as they live in the property every single day, ending up with great resentment and anger over the years.

 

5. Taking on fixing beyond their skill, patience and resource level. It can be heartbreaking to tour one of the many homes on the market that was clearly the subject of a previous owner's fixer-upper dream but was abandoned in the middle of a remodel. Often, these abandonments happen because the owner simply underestimated what the project would take and ran out of time, energy or, most commonly, money to get the remodeling completed. But it's even sadder to tour the home of a frustrated fixer whose owner and family still lives in a half-done, very dysfunctional property, and who are getting more and more disgruntled with their situation every time they make a mortgage payment.

Mortgage Update

		30 Year Fixed up to $417,000 3.25% to 3.50% 30 Year Fixed “Agency” up to $625,500 3.25% to 3.50% 30 Year Fixed FHA up to $417,000 3.25% to 3.50% 30 Year Fixed FHA “Jumbo” up to $729,500 3.25% to 3.50%

5 ways homeowners can protect against wildfires

By Paul Bianchina
Inman News®

Wildfires have become a tragic part of the daily news lately. They can strike anywhere, at any time, with no warning. State and federal firefighting budgets are stretched to the max as well, so it's more important than ever that you do everything you can to ensure that your home is as safe as possible. Should a wildfire ever come through your area, don't let your home become a statistic!

It doesn't take that much to protect your property against wildfire, and it helps with curb appeal and resale value at the same time. You might even consider organizing a neighborhood group to make the work go that much faster. Here are some of the steps you need to take:

Create a fire break

The single most important thing to do is create a defensible, noncombustible fire break around your home. If you have a noncombustible roofing material, such as metal, tile or composition shingles, then your fire break should extend out for 30 feet in all directions. To determine the layout of that area, simply measure out 30 feet from each edge of your home's combustible materials.

For example, you might need to measure from the edge of the roof overhang, or from the edge of a patio cover. If your home has a wooden deck, measure from the edge of that, but if you have a concrete or brick patio, you can measure from the house instead.

One of the biggest dangers during a wildfire is wind-driven embers. So if your home has a combustible roof, such as cedar shakes or shingles, you need to extend the fire break area from 30 feet out to 50 feet.

Within the fire-break area, you want to create a zone where things can't burn. That doesn't mean you have to clear cut and pave everything! You just want to create a well-maintained area that's as free as possible of combustible vegetation. For example, consider using fire-resistant landscaping such as grass, low groundcovers and low shrubbery. The other alternatives are hardscaping materials such as gravel, pavers or any other materials that won't burn.

Trim trees and remove dead material

Also within that defensible zone you need to thin out excess trees. During a fire, the flames will easily spread from tree to tree, so you want to thin them so they're no less than 10 feet apart. You also want to be sure to remove any dead trees.

All remaining healthy trees within the zone need to be limbed up to a height of at least 6 feet. This is done to prevent a fast-moving ground fire from being able to work its way up into the trees. For the same reason, all dead plant material should be removed or at least broken up so there isn't a fuel bed. Finally, be sure you cut dry grass to less than 4 inches high.

Clear your driveway

It's not something a lot of people think about, but in the event of fire, emergency vehicles need to be able to have clear access to your home if they're going to protect it. If you're on a piece of property with a long driveway that's more than 150 feet, fire officials typically request that overhanging trees be limbed up and back so there's at least 13 1/2 feet of vertical clearance and 12 feet of horizontal clearance. Protect your driveway from the fire by keeping vegetation cleared back for 10 feet from the driveway's centerline on each side.

Clean up your roof

Remove any dead branches that overhang your roof. Also, remove dead leaves and pine needles from the roof and gutters, including patio covers; those leaf and needle buildups are extremely flammable, and a single spark or ember can spread with amazing speed. Don't forget outbuildings on your property as well!

While you're up there, remember that sparks from your fireplace or woodstove are a real fire hazard. In addition to the cleaning, trim overhanging tree branches back a minimum of 10 feet from the chimney in all directions.

Be careful with outdoor storage

You don't want to store firewood right alongside your house, since it can become a real fire hazard and a source of a lot of retained heat during a wildfire. Move your firewood, as well as any lumber piles, at least 20 feet away from the house until fire season is over. Or, better yet, build a separate, enclosed wood storage shed a safe distance away.

The same is true for open areas under decks, which can be an inviting area for storing wood, gasoline and other flammable liquids, and all kinds of things that can catch fire easily and sustain a fire for a long time. Keep the underside of decks and stairs clear of anything and everything that can burn.

10 expenses you can deduct when renting out a room

By Stephen Fishman
Inman News®

Lots of people are trying to earn a few extra bucks by renting out a room in their home. This can not only be a good source of income, but result in tax deductions.

If you rent out a room in your home, the tax rules apply to you in the same way as they do for landlords who rent out entire properties. This means you get to deduct the expenses arising from your rental activity.

There is one big difference, however: You must divide certain expenses between the part of the property you rent out and the part you live in, just as though you actually had two separate pieces of property.

You can fully deduct (or, where applicable, depreciate) any expenses just for the room you rent; for example, repairing a window in the room, installing carpet or drapes, painting the room, or providing your tenant with furniture (such as a bed).

In addition, if you pay extra homeowners insurance premiums because you're renting out a room, the full cost is a deductible operating expense.

If you install a second phone line just for your tenant's use, the full cost is deductible as a rental expense. However, you cannot deduct any part of the cost of the first phone line even if your tenant has unlimited use of it.

Expenses for your entire home must be divided between the part you rent and the part you live in. This includes your payments for:

• mortgage interest.
• repairs for your entire home; for example, repairing the roof or furnace, or painting the entire home.
• improvements for your entire home; for example, replacing the roof.
• homeowners insurance.
• utilities such as electricity, gas and heating oil.
• housecleaning or gardening services for your whole home.
• trash removal.
• snow removal costs.
• security system costs.
• condominium association fees.

You can also deduct depreciation on the part of your home you rent.

You can use any reasonable method for dividing these expenses. It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. However, the two most common methods for dividing an expense are either based on the number of rooms in your home or based on the square footage of your home.

Example 1: Jane rents a room in her house to a college student. The room is 10 by 20 feet, or 200 square feet. Her entire house has 1,200 square feet of floor space. Thus, one-sixth, or 16.67 percent, of her home is rented out. She can deduct as a rental expense one-sixth of any expense that must be divided between rental use and personal use.

Example 2: Instead of using the square footage of her house, Jane figures that her home has five rooms of about equal size, and she is renting out one of them. She determines that one-fifth, or 20 percent, of her home is being rented. She deducts 20 percent of her expenses that must be divided between rental and personal use.

As the examples show, you can often get a larger deduction by using the room method instead of the square footage of your home.

Save money on exterior paint job

By Paul Bianchina
Inman News®

If you've been thinking of an exterior paint job for your home this summer, you may have already been talking with painting contractors and getting some estimates.

Ideally, you can put the entire project in the hands of the contractor, but you may be thinking that that's out of your budget. Rather than put off that much-needed paint job, you might want to consider a compromise between a contractor and some sweat equity by doing part of the work yourself.

Depending on how much time and energy you have available, there are actually several different things you can undertake on your painting project that will save you some money. Most require only basic tools and materials, and the skills needed are well within the reach of most homeowners.

Basic exterior cleaning and prep work

Before the house can be painted, there's a lot of prep work to be done, and that equals labor dollars that you're paying the contractor for. All of the patio furniture and other items around the outside of the house need to be moved.

Things like hose hangers, wall clocks, outdoor thermometers and wall decorations all need to be taken down (and put back up later). Shrubbery and other landscaping that's too close to the siding needs to be trimmed back, and sometimes held back temporarily with ropes or plywood.

Once all that's done, the house needs to be washed before it can be painted. Heavy pressure washing is typically not recommended, since it can drive moisture into siding and hidden cavities, and can actually do more harm than good. However, a pressure washer with low pressure and a wide fan spray can do a great job of cleaning off surface dirt, dust and cobwebs prior to painting. So can a garden hose and a spray nozzle, along with a scrub brush on a long handle.

Repairs and priming

A step beyond basic cleaning and moving is to undertake any necessary repairs, scraping and priming. Depending on your carpentry skills, you may be able to handle repairing or renailing some siding, or maybe taking care of some damaged trim. There may be some vents that need replacement, or other repairs that you can handle prior to the paint hitting the wall.

A very labor-intensive part of just about any exterior paint job is scraping off any old, loose paint. This is often just a matter of elbow grease with a paint scraper, a sander, or other basic prep tools to remove the loose paint and sand down the edges of the remaining paint as needed. After that, you can take it a step further and prime any bare wood with a good-quality wood primer.

One word of warning here: If your home was built prior to 1978, it may contain lead paint. Before scraping or sanding, you'll need to find out more about the hazards of working with lead paint, and how to test for it. Visit the EPA's website at www.epa.gov/lead, or contact the National Lead Information Center at 1-800-424-LEAD (5323).

Caulking

A top-quality exterior paint job involves a lot of caulking. Caulking seals the small gaps and holes so the finished paint job is clean and smooth, and more importantly, it prevents moisture from getting behind the paint. A good thorough caulking job has the added benefit of blocking air leaks, making your home more comfortable and energy efficient. Just work your way around the outside of the house with a caulking gun and several tubes of good-quality caulking, and close up the gaps.

Talk over the details with your contractor

If you'd like to do some of the work on your painting project yourself, be sure you discuss all the details with the painting contractor. Describe those things you're comfortable doing, and see if they're things that the contractor is comfortable turning over to you. Discuss the time frame for getting the work done so it doesn't impact the contractor's schedule, as well as suggestions for the best caulking and priming materials to use.

Some contractors may put a disclaimer in their contract saying they're not responsible for any of the work that you do, while others may get a little more hard-nosed about it and say they won't warranty their work at all. You simply need to have a discussion with a couple of different painting contractors, and choose the one you're most comfortable working with.

In the end, whatever the two of you decide on and agree to needs to be put in writing. Your contractor will probably insist on it, and you should as well -- it protects both of you!

Top Ten Legal Mistakes Home Buyers Make

Home prices post strongest growth since 2006

By Inman News
Inman News®

Demand for homes grew faster than the inventory of homes for sale in July, helping push the national median price of existing homes up for the fifth month in a row despite a modest increase in sales that fell short of some analysts' expectations.

The National Association of REALTORS® said today that the national median price of existing homes was up 9.4 percent from a year ago in July, to $187,300 -- the strongest annual gain since January 2006. The last time the national median home price posted five consecutive months of annual gains was January to May of 2006.

Sales of existing homes -- resales of single-family homes, townhomes, condominiums and co-ops -- were up 2.3 percent from June to July, to a seasonally adjusted annual rate of 4.47 million. That's a 10.4 percent increase from a year ago.

"Mortgage interest rates have been at record lows this year while rents have been rising at faster rates," said NAR Chief Economist Lawrence Yun in a statement. "Combined, these factors are helping to unleash a pent-up demand."

Yun said sales "could easily be much stronger" -- in a more "normal" range of 5 million to 5.5 million per year -- if not for "abnormal frictions" such as tight lending standards and shrinking inventory.

Although the number of existing homes on the market was up 1.3 percent from June to July, to 2.4 million, that represents a 6.4-month supply of homes at July's faster pace of sales, down from 6.5 months of supply in June. And looking back a year, listing inventories were down 23.8 percent, when there was a 9.3-month supply of existing homes for sale.

Analysts generally consider a six-month supply of existing homes to be a healthy balance of supply and demand. More than that indicates that sellers significantly outnumber buyers, which puts downward pressure on prices.

"The total supply of housing inventory appears to be balanced in historic terms but there are notable shortages in the lower price ranges which are limiting opportunities for first-time buyers," Yun said. "The low price ranges also are popular with investors, so entry-level buyers are at a disadvantage because many investors are making all-cash offers."

Although first-time buyers accounted for 34 percent of purchases in July, up from 32 percent in June, in a normal market they account for 40 percent of purchases, NAR said.

Writing on the blog Calculated Risk, Bill McBride noted that while the annual rate of sales in July was slightly below expectations of 4.5 million, "those focusing on sales of existing homes, looking for a recovery for housing, are looking at the wrong number. For existing-home sales, the key number is inventory -- and the sharp year-over-year decline in inventory is a positive for housing."

Source: National Association of REALTORS® via Calculated Risk blog.

Cons of early mortgage payoff

By Benny Kass
Inman News®

DEAR BENNY: I owe $13,000 on my home and would like to pay it off. My son thinks there is some legality that protects a homeowner when the bank still holds the mortgage. Is this correct? Any information would be greatly appreciated. --Carol

 

DEAR CAROL: I am not sure I understand your question. If you have a mortgage and owe money to a bank, the lender has the right to foreclose on your home if you become delinquent on your mortgage payment. The lender also has the right to sue you for a money judgment, based on the promissory note that you signed when you first obtained the loan.

As an aside, a Massachusetts court recently handed down an opinion stating that if the lender seeking to foreclose does not have the promissory note, the foreclosure cannot take place. As we all know from the mortgage problems facing this nation over the past several years, many lenders sold (hypothecated) their loans and no longer have the promissory note. This case is binding only in Massachusetts; but I suspect that many more courts throughout the country will follow up with the same decision.

Getting back to your situation, once you pay off the mortgage loan, the bank must release you from further obligations and record a release of the mortgage (deed of trust) on the land records in the county where your house is located.

So long as you are current with your monthly payments, you have nothing to fear from the lender.

But the real question: Why do you want to pay off the relatively small amount that you owe on your loan? I assume you can afford the monthly payment, especially if you have $13,000 available. Do you get (or need) tax deductions? While the interest you pay on a mortgage decreases yearly, there still will be some interest that you can deduct for tax purposes.

I know that readers will tell me, "I am only getting 0.1 percent interest on the money in my bank account so why not pay off a 4 or 5 percent loan?"

This is a personal matter that can only be answered by each borrower. However, after carefully analyzing all of the pros and cons, one "con" is that you do not want to be "house rich and cash poor." Another "con" is that someday in the future, your bank will start paying you more interest.

So here's a compromise: Instead of making the exact monthly payment required by the bank, why not add a couple of hundred dollars to the payment each and every month? Make sure that you advise your bank (on the check you send in or on the coupon the bank receives) that you are making an extra payment to be credited toward principal.

In my example, if you add $200 each month, that will reduce your balance each year by $2,400, and will pay off the $13,000 in a little over five years.

DEAR BENNY: Exactly what does "tenants in common" mean? That's the way title to the house that I own with my boyfriend. --Beth

DEAR BETH: Tenants in common means that you and your boyfriend each own a portion of the house. Typically, it is 50-50, but there is no legal requirement as to how ownership is held. While you may not be able to find a buyer for your half (if that's what you have), you do have the legal right to sell your share. If you die, your interest in the house will go to your heirs, and generally some form of probate is required (depending on what state you are in).

Permit me to make a suggestion: You and your boyfriend must enter into a partnership agreement. That would cover such issues as (1) who pays what, (2) what happens if one of you cannot make the necessary payments, (3) what happens if one of you wants out of the deal, and (4) what happens if one of you should die.

I would rather you resolve such issues and reduce them to a written agreement while you are talking to each other than when you both are angry and want out of the arrangement.

 

DEAR BENNY: Is it legal to be charged $350 for an appraisal that I have not seen, do not have in my possession and that has absolutely no value, because of the lapse of time (120 days plus)?

In February of this year, when home mortgage rates dropped below 4 percent, I followed the link on my local bank's website to obtain further information on refinancing my home. A few days later I was contacted by their loan department. Although I was quite hesitant, the loan person convinced me it was a great time to refinance and assured me the process would be quick and simple and closing costs would not be exorbitant. I agreed to proceed with the process if the rate would lock in below 4 percent; it was, at 3.99 percent, for 45 days.

On March 7 an appraiser came to my home, by order of the bank. I was told by the loan officer that it would be no more than 30 days to receive the appraisal, run the title search, set up closing, etc. After several more calls in March, I was informed that my bank would not actually be servicing the loan and that it would be sold to another company. I expressed considerable concern with that, but was assured it was safe and I was in no danger of falling into the mortgage fiasco that has occurred in recent years.

Sometime in April, shortly before the locked-in rate was due to expire, the loan officer contacted me by telephone and said that a survey of my property would be required, as the aerial photos showed a discrepancy on the property line. I informed him that I had seen aerials of several neighbors' properties, and that they were incorrect and that I was unwilling to spend $1,000 or more on a survey for a property on which I have already obtained three prior loans and where I have lived for eight years. He stated that there might be a way to get some type of abbreviated survey, which would be less expensive, and that he would get back to me with the information. He did not.

On approximately May 10, 2012, I called the loan officer to inform him that I was tired of waiting on him and that he had really dropped the ball on this loan and I was no longer interested in working with him. I did not reach him, I left a voice mail. He did not even have the courtesy to return my call.

My issue is this: On July 7, 2012, I received an invoice from my local bank for $350 for an appraisal, which, not only have I not seen or been informed of its contents, is out of date and unusable by anyone's standards. Even the local bank requires an appraisal to be current within 90 days. I did not even receive a letter of apology or explanation for the fees, just an invoice and a copy of a document I signed on Feb. 29 stating that I might incur charges whether the application was approved or denied. I signed the papers put in front of me without question. Foolish perhaps, but I trusted the personnel at my local bank.

This loan did not fail to proceed through any fault of mine. I presented all required documents, with the exception of the survey, I have a credit score of more than 800, and I have adequate income. I have since obtained a refinance loan, through another institution, which closed within 30 days of application, at a lower rate than I was offered by the first loan officer, and which did not require a survey or an appraisal. Am I obligated to pay this fee and would it be worth my while to hire an attorney to fight it on principle? --Susan

 

DEAR SUSAN: If you want to spend considerably more than $350 to fight the bank, more power to you. But you obviously have to resolve this now or it may come back to haunt you if it shows up on a future credit report, which it probably will.

My suggestion: In addition to sending letters to the bank, I would send a formal complaint to your local state attorney general, and also to the new Consumer Financial Protection Bureau (on the Web atwww.consumerfinance.gov).

If that doesn't work, you may want to consider filing a suit against the bank in your local small claims court. While you can have an attorney represent you, my experience is that most clerks in those courts are very helpful and you can file the complaint without a lawyer. My experience also is that many banks that are sued will immediately settle, rather than have to spend time and money defending a $350 claim.

NOTE: Referring to the newly created Consumer Financial Protection Bureau (CFPB), that agency just issued proposed regulations that if finalized will dramatically make the homebuying process more understandable. Two new forms will have to be provided to potential homebuyers seeking mortgage money: a loan estimate form and a closing disclosure form.

Consumers are encouraged to review the material and send in comments to the bureau no later than Nov. 6, 2012. For more information, type in "Know Before You Owe" on your favorite Internet search engine. That's the name the bureau uses for some of its projects.

Stop foundation issue from killing sale

By Barry Stone

DEAR BARRY: We bought our home last year. It was a fixer-upper, but our home inspector found no major problems. After spending $75,000 on renovations, we put it on the market and had a buyer in just three days.

But the buyer's home inspector found a foundation problem that our inspector had missed. We called our home inspector. He looked under the house again and said he saw no problem. So the buyer canceled the deal.

We had the foundation repaired by an engineering firm and found new buyers. Coincidentally, they hired the same inspector as the previous buyer. He said the foundation problem had been repaired, but the buyers were spooked and canceled the deal again.

I would not have purchased this home if my home inspector had found the foundation problem. He worked for a nationally reputable firm, so I thought he would do a good job. What can I do to resolve this situation? --Brian

 

DEAR BRIAN: Before answering your question, something should be said about your choice of home inspectors. It doesn't matter if a home inspection company has a glowing national reputation. What matters is the knowledge and experience of the individual inspector. Not everyone who works for a reputable firm is an excellent inspector. The inspector you hired was apparently not the best, but that was a lesson learned, and now you need to move ahead with the sale of the property.

If the foundation repairs were performed in a substantial manner by a competent, licensed contractor, this should have been affirmed by the inspector who originally discovered the problem. You say he did this, but still the buyers were scared off. Perhaps the inspector is not as good at communicating as he is at finding defects. Or perhaps these were overly cautious buyers.

To prevent this foundation issue from becoming a problem in any future transactions, you should have the repair work evaluated by a licensed structural engineer. If the engineer is satisfied with the quality of the repair, he can provide a letter to that effect, and that letter can be used as disclosure to buyers.

If the engineer is not satisfied with the repair work, he can advise you accordingly. Once you have written affirmation that the foundation is stable, it should be provided to buyers before they hire a home inspector. That way the issue will be resolved at the outset of the transaction, before the inspection report can spook or surprise the buyers.

 

DEAR BARRY: I read your article about the window requirement for a basement bedroom. If a basement room doesn't meet exit requirements, can a family member legally use it as a bedroom? --Jerry

 

DEAR JERRY: No one can prevent a family member from sleeping anywhere he chooses in his own home. If a person is so inclined, he can sleep in the kitchen, bathroom or a closet. Without a window for emergency exit, a basement room is not a legal bedroom, but no one can prohibit a family member from sleeping in it.

Which party pays for termite, septic inspections?

Q: Which party usually pays for the termite inspection fee and septic tank inspection fee? My escrow was opened on a short-sale listing owned by Chase Bank. But there is no provision in escrow stating who will pay for these things. I asked my agent (who is also the listing agent), and he doesn't know, but my Wells Fargo mortgage consultant says the other party should pay for it. --Sue D.

A: In a real estate purchase/sale transaction, there are a number of fees other than the sale price that must be paid to get the deal done; these are what industry insiders call closing costs. Most people think of closing costs as the buyer's mortgage origination fee or loan documentation fee, or maybe the appraisal costs. But there are a number of other services that must take place for the transaction to move forward, including inspections, and someone has to pay for them.

When trying to figure out which party (buyer or seller) pays for which of these services, here are a few:

1. Local standard practices. Most local areas have standard practices for who pays which fees, and these vary widely, even between neighboring areas. For example, in my neck of the woods, it's very common for:

• the buyer to pay all escrow and title charges;
• the seller to pay the county transfer taxes; and
• buyer and seller to split the city transfer taxes, 50/50.

However, just down the road, in a neighboring county, buyers and sellers split escrow and title fees, sellers pay the county tax, and cities don't even levy a transfer tax at all! Often, local standard practices will be relied upon to determine who pays which fees. In my experience, it's common for local practices to require buyers to pay for their own inspections; however, I have also done transactions in areas where the inspections that are required by city or county governments are paid for by the seller.

I don't know whether your septic tank inspection is a government-required inspection, or what your local customary practices are in this regard, but an experienced, local agent should be able to advise you on what is standard in your area; if your agent seems not to know, you may want to contact his or her supervising broker.

2. Your contract and short-sale specifics. Every real estate sale contract I've ever seen has a section that expressly allocates these standard closing costs between the buyer and the seller -- even short-sale contracts. And, yes, most often, the contract will mirror the local practices for allocating these costs. With that said, everything in a real estate transaction is negotiable, so it is certainly possible for a buyer and seller to agree to some allocation of costs that is different than the customary local standards. The authority on the matter of who pays which costs, ultimately, is your contract (including any short-sale addenda that were added to the original contract by the seller's bank, Chase).

Accordingly, I'm not sure why there seems to be so much confusion on the part of your professionals about who should be paying which fees. One possibility that comes to mind is that since you and the seller shared an agent, the closing-cost allocation provision(s) regarding these particular inspections might have been erroneously omitted from the contract entirely.

At this stage of the game, the agent might not want to draw attention to this omission. And, if I had to make an educated guess, your mortgage pro is assuming that the seller pays, either (a) because that's the local custom, or (b) because that's what's stated in your contract.

In any event, look to your contract for the final word on who pays these fees. Again, I have almost always seen the cost of the termite inspection allocated to the buyer, while other inspections are also usually (but not always) the responsibility of the buyer -- with the exception of some that the local government requires.

3. Your own best interests. Here's a reality check: Ultimately, these particular inspections are for your protection, and the information they produce will be to your advantage. If, for whatever reason, they are not expressly allocated in your contract, and you're truly committed to this house, consider obtaining them at your own cost.

When you pay for an inspection, you get to choose your own inspector and, in some areas, that inspector owes you a greater legal duty to do his job competently than he would if the seller were paying him.

So, don't skimp, especially not on your inspections. If your contract has already been approved by the bank, you may have a limited time frame to get them done before your inspection contingencies run out and you're forced to decide whether or not to move forward with the transaction (i.e., whether or not to allow your deposit to become nonrefundable).

The very worst-case scenario would be to let the timeline run and find out there were issues when it's too late to back out without losing your earnest money.

If there is no contract provision that expressly allocates these costs, and you really care about the property, my advice is to pay for them, pick your own inspectors and keep the transaction moving forward.